They say that the only good settlement is one in which each side is unhappy with the result. Since so many lawsuits settle before trial in California, it's a good assumption that there are lots of parties who didn't get everything they wanted. One thing a defendant is certain to demand is a guarantee that the settlement extinguishes the legal claims against her. But what about claims the parties aren't even aware of? In California, that's addressed in Civil Code Section 1542.
California General Release
Going to trial in California is expensive and time consuming. For average people, this makes taking a case through trial problematic. That's the primary reason that so many parties decide to split the baby, settling their controversy outside of the courthouse. They find a settlement amount that each party can live with and sign on the dotted line. The plaintiff (the person who brought the case) gets money, while the defendant, against whom the case was filed, gets a "general release."
A general release is a legal document that the plaintiff signs. In exchange for the settlement amount, the plaintiff agrees to give up all claims against the defendant that arise out of the same circumstances. For example, in an automobile crash, the plaintiff, in exchange for the negotiated amount, would give up claims against the other driver and his insurance company for damage to the car, pain and suffering and medical bills. However, under Civil Code section 1542, some claims might survive a general release.
California Civil Code 1542
California law recognizes that a general release extinguishes most of the plaintiff's claims against the defendant stemming from the incident. But Civil Code section 1542 makes an exception to this rule. It excludes from a general release claims the plaintiff did not know about when she signed the release. If the plaintiff was not aware of a particular claim and that claim would have made a material difference in the settlement, it is not included in a general waiver.
What kinds of claims are typical of those excepted by Civil Code 1542? Typical unknown claims include actions against insurance company defendants for bad faith.
General Release with 1542 Waiver
Although Civil Code 1542 has helped plaintiffs by protecting their claims, it has made settlement less attractive for defendants, especially insurance company defendants. The result of the statute has been that, even after a settlement, the same plaintiff might be able to sue the same defendant again over the same incident.
But soon defendants started including 1542 waivers in general releases in California, a practice the courts ruled is permissible. Most general releases offered these days by defendants in California include legal language waiving Civil Code 1542 protections.
That doesn't mean that a plaintiff has to accept the proposed settlement language. Plaintiffs and their legal counsel must review the circumstances of the case to determine the possibility of unknown claims and factor this into any settlement.
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